NETANYA, Israel, August 26, 2010 /PRNewswire-FirstCall/ --
- Cellcom Israel Presents an Increase in Revenues, Operating Income, EBITDA, EBITDA Margin and Net Income
- EBITDA[1] up by 7.1%; EBITDA Margin 40.3% - Net Income up by 17.7% - Cellcom Israel Declares a Second Quarter Dividend of NIS 3.13 per Share (Totals Approx. NIS 310 Million)
Second Quarter 2010 Highlights (compared to the second quarter 2009):
- Total Revenues from services increased 5.5% to NIS 1,498 million ($387 million)
- Revenues from content and value added services (including SMS) increased 28.7%, reaching 18% of services revenues
- Total Revenues (including revenues from end-user equipment) increased 5.2% to NIS 1,691 million ($436 million)
- EBITDA increased 7.1% to NIS 682 million ($176 million); EBITDA margin 40.3%, up from 39.6%
- Operating income increased 12.4% to NIS 499 million ($129 million)
- Net income increased 17.7% to NIS 326 million ($84 million)
- Subscriber base increased approx. 28,000 during the second quarter 2010, all post-paid subscribers; reaching approx. 3.341 million at the end of June 2010
- 3G subscribers reached approx. 1.076 million at the end of June 2010, net addition of approx. 39,000 in the second quarter 2010
- The Company Declared second quarter dividend of NIS 3.13 per share
Cellcom Israel Ltd. (NYSE: CEL TASE: CEL) ("Cellcom Israel", the "Company"), announced today its financial results for the second quarter of 2010. Revenues for the second quarter 2010 totaled NIS 1,691 million ($436 million); EBITDA for the second quarter 2010 totaled NIS 682 million ($176 million), or 40.3% of total revenues; and net income for the second quarter 2010 totaled NIS 326 million ($84 million). Basic earnings per share for the second quarter 2010 totaled NIS 3.30 ($0.85).
Commenting on the results, Amos Shapira, Chief Executive Officer said, "In the second quarter of 2010, Cellcom Israel continued to present strong performance with solid growth in revenues, EBITDA, EBITDA margin, operating income, net income and subscriber base.
Furthermore, airtime minutes grew 5.6%, year over year, in the second quarter compared with a 3.4% growth in the second quarter of 2009. Service revenues grew 5.5%, year over year, this quarter compared with a 0.7% growth in the second quarter of 2009. In the second quarter 2010, we continued to expand our 3G subscriber base, reaching 1.076 million at the end of June 2010, representing 32.2% of our total subscriber base.
These positive results are a testament to our strategy of focusing oncellular communications while being committed to delivering quality customerservice. Despite continued competition and many challenges in our industry,we have maintained our position as market leader. We will continue to workaccording to our strategy so that we can maximize our performance. So far, wehave succeeded in generating growth and entering into areas, such as landlineservices to the business segment, which led to higher revenues and increasedprofitability. Indeed, we are happy to announce that we have won theAccountant General's tender for landline services. This, along with theIsraeli Defense Force tender won a year ago, reflect the momentum in ourlandline services, regarding our technological capability, level of serviceand customer satisfaction. We will also continue to leverage our corebusiness through new synergetic growth opportunities, while prudentlymanaging expenses. Furthermore, we are preparing ourselves to enter thefinancial services market, on which we have recently reported. It is only thebeginning of this initiative, but with our leading partners, Citi Group andIsracard Group, we believe that together we will take advantage of theadditional untapped opportunities of the cellular device. Finally, thecompletion of the acqusition of Dynamica's assets and operation and itssuccessful integration, indicates that it was a right move, which has alreadycontributed to Cellcom Israel's results.
We are awaiting the results of the Ministry of Communications' (MoC) hearing regarding the decrease of the interconnect tariff to cellular operators[2], for which we filed our formal objection. Depending on the outcome, we may continue our case against these proposed changes. Concurrently, we are continuing to develop measures to mitigate, as much as possible, the expected adverse impact of these proposed changes."
Yaacov Heen, Chief Financial Officer, commented: "This has been a verystrong quarter for Cellcom Israel. We have presented year over year growth inall key areas, including a 5.2% increase in total revenues, a 28.7% increasein content and value added services revenues, a 12.4% increase in operatingincome, and a 7.1% increase in EBITDA with an EBITDA margin of 40.3%. Netincome for the second quarter increased 17.7% compared to the second quarterof 2009. The consolidation of Dynamica, our new subsidiary, contributed NIS 8million to our service revenues and NIS 3 million to our EBITDA. Particularlyencouraging was the growth in ARPU we presented in the second quarter thisyear, which was attributed to increased subscribership of post-paid customersrelative to pre-paid, as well as to our acquisition of Dynamica. In thesecond quarter 2010, we also continued to present a strong free cash flow[3],totaling NIS 323 million (excluding the acquisition of the assets andoperation of Dynamica, our free cash flow reached NIS 431 million). Thisstrong cash flow enables us to distribute a dividend of approximately NIS 310million, representing approximately 95% of net income for the second quarter,to our shareholders."
Main Financial and Performance Indicators:
Q2/2010 Q2/2009 % Change Q2/2010 Q2/2009 million NIS million US$ (convenience translation) Total Services revenues 1,498 1,420 5.5% 386.6 366.5 (including revenues from content and value added services) Revenues from content and value added services 269 209 28.7% 69.4 53.9 Handset and accessories revenues 193 188 2.7% 49.8 48.5 Total revenues 1,691 1,608 5.2% 436.4 415.0 Operating Income 499 444 12.4% 128.8 114.6 Net Income 326 277 17.7% 84.1 71.5 Free cash flow[4] 323 400 (19.3%) 83.4 103.2 EBITDA 682 637 7.1% 176.0 164.4 EBITDA, as percent of Revenues 40.3% 39.6% 1.8% Subscribers end of period 3,341 3,228 3.5% (in thousands) Monthly ARPU 146.6 143.7 2.0% 37.8 37.1 Average Monthly MOU 338 330 2.4%
Financial Review Revenues for the second quarter of 2010 totaled NIS 1,691 million ($436million), a 5.2% increase compared to NIS 1,608 million ($415 million) in thesecond quarter last year. The increase in revenues resulted mainly from a5.5% increase in revenues from services, reaching NIS 1,498 million ($387million) in the second quarter of 2010, up from NIS 1,420 million ($366million) in the second quarter last year. The higher service revenuesresulted mainly from an increase of approximately 29% in content and valueadded services (including SMS) revenues in the second quarter 2010, comparedto the second quarter last year. Revenues from content and value addedservices reached NIS 269 million ($69 million), or 18% of service revenues.Furthermore, the increase in landline services revenues during the quarteralso contributed to the higher service revenues.
Cost of revenues for the second quarter of 2010 totaled NIS 838 million ($216 million), a 2.3% increase from NIS 819 million ($211 million) in the second quarter last year. This increase primarily resulted from a quantitative increase in the number of outgoing calls completed in other operators' networks resulted in an increase in total interconnect fees paid to other operators, and an increase in the cost of content and value added services due to increased usage. These increases were partially offset by a decrease in handsets repair costs due to implemented efficiency measures, as well as a decrease in royalties to the Ministry of Communications resulting from a decline in the royalties' rate.
Gross profit for the second quarter of 2010 increased 8.1% reaching NIS 853 million ($220 million), compared to NIS 789 million ($204 million) in the second quarter of 2009. Gross profit margin for the second quarter 2010 increased to 50.4% from 49.1% in the second quarter last year.
Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the second quarter of 2010 totaled NIS 353 million ($91 million), compared to NIS 343 million ($89 million) in the second quarter last year. The increase in SG&A Expenses resulted mainly from an increase in the Company's sales and customer service force, due to, among others, the acquisition of Dynamica, which led to an increase in payroll expenses.
Operating income for the second quarter 2010 increased 12.4%, reaching NIS 499 million ($129 million), compared to NIS 444 million ($115 million) in the second quarter last year.
EBITDA for the second quarter 2010 increased 7.1%, reaching NIS 682 million ($176 million), compared to NIS 637 million ($164 million) in the second quarter of 2009. EBITDA as a percent of total revenues, reached 40.3% compared to 39.6% in the second quarter last year.
Financing expenses, net for the second quarter 2010 totaled NIS 61million ($16 million), compared to NIS 67 million ($17 million) in the secondquarter last year, a 9% decrease. The decrease resulted from three mainelements: (1) a gain from currency hedging transactions due to a depreciationof 4.4% of the NIS against the US dollar in the second quarter of 2010,compared to a loss from currency hedging transactions in the second quarterlast year due to an appreciation of 6.4% of the NIS against the US dollar inthe second quarter last year; (2) lower Israeli Consumer Price Index, or CPI,linkage expenses, associated with the Company's debentures, in the secondquarter 2010 compared to the second quarter 2009, resulting mainly from alower inflation of 1.3% in the second quarter this year, compared to 1.9% inthe second quarter last year; and (3) a gain on the Company's currentinvestment in tradable debentures. These three impacts were partially offsetby a decreased income from the CPI hedging transactions in the second quarter2010 compared to the second quarter last year, due to the lower inflation inthe second quarter of 2010 compared to the second quarter last year, as wellas from lower income from foreign currency differences relating to tradepayables balances in the second quarter 2010, compared to the second quarterlast year, following the changes in the NIS/US dollar exchange rate.
Net Income for the second quarter 2010 increased 17.7% and totaled NIS 326 million ($84 million), compared to NIS 277 million ($71 million) in the second quarter last year. Basic earnings per share for the second quarter 2010 totaled NIS 3.30 ($0.85), compared to NIS 2.82 ($0.73) in the second quarter 2009.
Operating Review
New Subscribers - at the end of June 2010 the Company had approximately 3.341 million subscribers. During the second quarter of 2010 the Company added approximately 28,000 net new subscribers, all of them post-paid subscribers.
In the second quarter of 2010, the Company added approximately 39,000 net 3G subscribers to its 3G subscriber base, reaching approximately 1.076 million 3G subscribers at the end of June 2010, representing 32.2% of the Company's total subscriber base, an increase from the 27.2% 3G subscribers represented of total subscribers at the end of June 2009.
The Churn Rate in the second quarter 2010 was 4.9%, compared to 4.6% in the second quarter last year. The churn for both quarters was primarily impacted by the churn of pre-paid subscribers, characterized by lower contribution, and subscribers with collection problems.
Average monthly subscriber Minutes of Use ("MOU") in the second quarter 2010 totaled 338 minutes, compared to 330 minutes in the second quarter 2009, an increase of 2.4%.
The monthly Average Revenue per User (ARPU) for the second quarter 2010totaled NIS 146.6 ($37.8), compared to NIS 143.7 ($37.1) in the secondquarter last year, an increase of 2%. This increase resulted mainly from theimprovement of our subscriber base, reflected by increased subscribership ofpost-paid subscribers relative to pre-paid subscribers, as well as from theconsolidation of Dynamica's revenues.
Financing and Investment Review
Cash Flow
Free cash flow for the second quarter of 2010 totaled NIS 323 million($83 million), compared to NIS 400 million ($103 million) generated in thesecond quarter of 2009. The decrease in free cash flow resulted from paymentof NIS 108 million ($28 million) for the acquisition of the assets andoperation of Dynamica, one of our major dealers. Excluding this payment, ourfree cash flow totaled NIS 431 million ($111 million), a 7.8% increase.
Shareholders' Equity
Shareholders' Equity as of June 30, 2010 amounted to NIS 411 million ($106 million), primarily consisting of accumulated undistributed retained earnings.
Investment in Fixed Assets and Intangible Assets
During the second quarter 2010, the Company invested NIS 255 million ($66million) in fixed assets and intangible assets (including, among others,deferred sales commissions and handsets subsidies and investments ininformation systems and software), compared to NIS 170 million ($44 million)in the second quarter 2009. The investment in the second quarter of 2010includes the payment of NIS 108 million ($28 million) pursuant to theacquisition of assets and operation of Dynamica.
Dividend
On August 26, 2010, the Company's board of directors declared a cashdividend in the amount of NIS 3.13 per share, and in the aggregate amount ofapproximately NIS 310 million (the equivalent of approximately $0.82 pershare and approximately $81 million in the aggregate, based on therepresentative rate of exchange on August 24, 2010; The actual US$ amount fordividend paid in US$ will be converted from NIS based upon the representativerate of exchange published by the Bank of Israel on October 5, 2010), subjectto withholding tax described below. The dividend will be payable to all ofthe Company's shareholders of record at the end of the trading day in theNYSE on September 20, 2010. The payment date will be October 7, 2010.According to the Israeli tax law, the Company will deduct at source 20% ofthe dividend amount payable to each shareholder, as aforesaid, subject toapplicable exemptions. The dividend per share that the Company will pay forthe second quarter of 2010 does not reflect the level of dividends that willbe paid for future quarterly periods, which can change at any time inaccordance with the Company's dividend policy. A dividend declaration is notguaranteed and is subject to the Company's board of directors' solediscretion, as detailed in the Company's annual report for the year endedDecember 31, 2009 on Form 20-F, under "Item 8 - Financial Information -Dividend Policy".
Other developments during the second quarter of 2010 and subsequent to the end of the reporting period
Regulation
Tariff Supervision
Following the previously reported Israeli Ministry of Communications'announcement that it is considering reducing interconnect tariffs payable tocellular operators, in June 2010, the Company filed its formal objection tothe proposed reduction. As previously reported, the Company cannot assess atthis stage the ultimate outcome of the hearing. If the changes as currentlyproposed are adopted, they are expected to have a material adverse effect onthe Company's results. Such adverse effects include both the direct effect ofthe proposed reduction (the estimated scope of which was previously reportedby the Company) and anticipated loss of outgoing cellular calls (which mayoccur due to an arbitrage gap created under the proposed tariff in favor oflandline alternatives, including through the usage of landline based"callback" services), as well as other effects of the proposed reduction ininterconnect tariffs, such as facilitating the entry of MVNOs and newoperators to the market. The Company intends to take measures to mitigate asmuch as possible the expected adverse effects of such proposed changes butcan provide no assurance that these will be successful.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations" as well as under "Item 4. Information on the Company - B. Business Overview - Competition" and "Government Regulations -Tariff Supervision" and the Company's immediate report regarding the Company's results of operations in the first quarter of 2010 on form 6-K dated May 17, 2010, under "Other developments during the first quarter of 2010 and subsequent to the end of the reporting period - Regulation - Tariff Supervision".
For additional regulatory changes expected to have additional material adverse effect on the Company's results, see "Other Regulatory developments" below.
Forward Looking Statement -The information above contains, or may bedeemed to contain, forward-looking statements (as defined in the U.S. PrivateSecurities Litigation Reform Act of 1995 and the Israeli Securities Law,1968). These forward-looking statements, relating to the reduction ofinterconnect tariffs and its impact on the Company's results of operations,are subject to uncertainties and assumptions about the outcome of theaforesaid hearing, the actual effects of the reduction (including customerreaction and substitution of other products) and the Company's ability tomitigate the expected lost revenues. Any change to the tariff proposed, theactual effect of the reduction, as well as the Company's ability to mitigatethe expected lost revenues, could lead to materially different outcome thanthat set forth above.
Other regulatory developments
In July 2010, the Israeli Government approved the Israeli Economic Policy for the years 2011- 2012, which includes various proposed changes to the regulatory conditions under which the Company operates. These proposed changes include:
(1) Compulsory national roaming services Existing operators (other thanMirs Communications Ltd., or Mirs, an existing niche operator) would berequired to provide new operators and Mirs (together: New Operator), withnational roaming services, or the Service, for a period of 7 - 10 years(subject to certain conditions). If the New Operator and the hosting operatorhave not reached an agreement, as to the terms of the Service (including theconsideration), for any reason, until the Service is to commence (aftercertain criteria is met) the Service will be provided for the then prevailinginterconnect tariff and subsequently (but no later than February 1, 2012)shall be determined by the Minister of Communications with the consent of theMinster of Treasury and applied retroactively. Implementation of this changeand/or mandatory unfavorable terms and consideration for the Service (such asequal or based on the interconnect tariff), may result in material adverseeffect on our results of operations and reduction in the Company's marketshare.
(2) Increased royalties Royalties payable to the MOC in relation to revenues generated from telecommunication services provided under a general license for the provision of cellular services will be increased for a period of 3 years, from 1% in 2010, to 2% in 2011 and 2.5% in 2012 and 2013. This change will not apply to MVNOs.
Additional proposed changes includes: (3) Prohibition on any limitation (including by differential pricing) on the usage of any services and applications on a cellular internet, the capabilities of a cellular handset and the possibility to use a cellular handset in any similar cellular network; (4) Reduction of early termination fees in pricing plans which include a commitment to a predefined period, to a certain amount to be calculated out of the subscriber's average monthly bill and prohibition on demanding full payment of the handset's remaining installments pursuant to early termination; all of which, if adopted, are expected to limit the Company's freedom to conduct its business and may have an adverse effect of the Company's results of operation.
Proposed changes (1),(3) and (4) above require additional legislativeprocess by the Israeli Parliament, as they entail amendments to the currentCommunication Law or other legislation; Proposed change (2) above requires anamendment of the applicable regulations by the Minister of Communications andthe Minister of Treasury and the approval of the Israeli Parliament'seconomic committee. Other proposed changes, such as to provide VOBoC licensesby January 1, 2011, including to MVNOs and require cellular operators tooffer data only services, are subject to further examination.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations" and " We face intense competition in all aspects of our business", as well as under "Item 4. Information on the Company - B. Business Overview - Competition", "Government Regulations -Tariff Supervision" and "Royalties".
Forward Looking Statement - The information above contains, or may bedeemed to contain, forward-looking statements (as defined in the U.S. PrivateSecurities Litigation Reform Act of 1995 and the Israeli Securities Law,1968). These forward-looking statements, relating to the implementation ofthe Government resolutions and their influence on the Company's results ofoperations, are subject to uncertainties and assumptions regarding theadoption of such resolutions by the Israeli parliament, relevant committee orthe relevant ministries and the final form of such changes will be adopted,if adopted. MVNO Following the previously reported enactment of the regulations inJanuary 2010 necessary for the provision of MVNO license, several companieshave applied for an MVNO license and, to date, the Ministry of Communicationshas granted MVNO licenses to three Israeli companies: Telecom 365 Ltd.(wholly owned by a leading Israeli retail chain), Free Telecom Ltd. (also inpossession of a VoBoC trail license) and Ituran Cellular Communications Ltd.(from Ituran group, the leading company in Israel for tracking and protectionservices for vehicles). Mandatory unfavorable terms and consideration for thehosting MVNOs on the Company's network (such as equal to or based on theinterconnect tariff), may result in additional material adverse effect on theCompany's results of operations.
For additional details see the Company's most recent annual report for the year ended December 31, 2009 on Form 20-F under "Item 3. Key Information - D. Risk Factors - Risks related to our business - We operate in a heavily regulated industry, which can harm our results of operations" and " We face intense competition in all aspects of our business", as well as under "Item 4. Information on the Company - B. Business Overview - Competition" and "Government Regulations - Mobile Virtual Network Operator".
Cell sites - National Zoning Plan 36 - Following the previously reportedrevision process of the National Zoning Plan 36, or the Plan, in June 2010,the National Council for Planning and Building decided to approve theproposed changes to the Plan and to submit it for the approval of the IsraeliGovernment. For additional details see the Company's most recent annual report forthe year ended December 31,2009 on Form 20-F, under "Item 3. Key Information- D. Risk Factors - Risks related to our business - We may not be able toobtain permits to construct cell sites" as well as under "Item 4. Informationon the Company - B. Business Overview - Government Regulations - Permits forCell site Construction -National Zoning Plan 36".
Services and Products - Entry To Financial Services Market
In July 2010, the Company announced its entry to the financial services market including through an innovative "mobile wallet". The first step includes a cooperation agreement with Citibank group, or Citi, that will enable the remittance of funds out of Israel by customers of all cellular operators in Israel, through Citi's platform and worldwide distribution channels. Additional added value services will be provided to the Company's mobile wallet customers through a collaboration between the Company and Isracard group, a leading Israeli credit card company.
Mr. Amos Shapira, the Company's CEO, commented on the new remittanceservice: "The mobile phone is the world's most common computerized retailpoint of sale. It is this added value that Citi and the Company intend tobring to the financial services market." Mr. Shapira further noted that theCompany's entry to the financial services market is consistent with theCompany's business strategy to create growth opportunities and provide addedvalue to its customers while leveraging the mobility advantage and theCompany's core business and competencies through new synergies. "LeveragingCiti's international banking and financial capabilities, expertise andinfrastructure and the mobility advantage provided by the Company, togetherwith its familiarity with the Israeli consumer and close relationship withits customers, the remittance services are expected to have a non significanteffect on the Company's expenses" added Mr. Shapira.
The mobile wallet is expected to be launched by the end of 2010.
The Company also intends to launch an internet based payment service and is reviewing the launch of additional financial services, such as bill payments and product purchasing through the mobile phone.
Forward Looking Statement - The information contained in this pressrelease contains, or may be deemed to contain, forward-looking statements (asdefined in the U.S. Private Securities Litigation Reform Act of 1995 and theIsraeli Securities Law, 1968). These forward-looking statements, relating tothe launch of financial services and the impact of the money remittanceservices on the Company's expenses, are subject to uncertainties andassumptions regarding market conditions, Citi's performance and theregulatory environment. Any change in such factors, could lead to materiallydifferent outcome than that set forth above.
Conference Call Details
The Company will be hosting a conference call on Thursday, August 26,2010 at 9:30 am ET, 6:30 am PT, 14:30 UK time, 16:30 Israel time. On thecall, management will review and discuss the results, and will be availableto answer questions. To participate, please either access the live webcast onthe Company's website, or call one of the following teleconferencing numbersbelow. Please begin placing your calls at least 10 minutes before theconference call commences. If you are unable to connect using the toll-freenumbers, please try the international dial-in number.
US Dial-in Number: 1-888-668-9141 UK Dial-in Number: 0-800-917-5108
Israel Dial-in Number: 03-918-0610 International Dial-in Number: +972-3-918-0610
at: 09:30 am ET; 06:30 am PT; 14:30 UK Time; 16:30 Israel Time
To access the live webcast of the conference call, please access the investor relations section of Cellcom Israel's website: http://www.cellcom.co.il. After the call, a replay of the call will be available under the same investor relations section.
About Cellcom Israel
Cellcom Israel Ltd., established in 1994, is the leading Israeli cellularprovider; Cellcom Israel provides its approximately 3.341 million subscribers(as at June 30, 2010) with a broad range of value added services includingcellular and landline telephony, roaming services for tourists in Israel andfor its subscribers abroad and additional services in the areas of music,video, mobile office etc., based on Cellcom Israel's technologically advancedinfrastructure. The Company operates an HSPA 3.5 Generation network enablingadvanced high speed broadband multimedia services, in addition toGSM/GPRS/EDGE and TDMA networks. Cellcom Israel offers Israel's broadest andlargest customer service infrastructure including telephone customer servicecenters, retail stores, and service and sale centers, distributed nationwide.Through its broad customer service network Cellcom Israel offers itscustomers technical support, account information, direct to the door parcelservices, internet and fax services, dedicated centers for the hearingimpaired, etc. As of 2006, Cellcom Israel, through its wholly ownedsubsidiary Cellcom Fixed Line Communications L.P., provides landlinetelephone communication services in Israel, in addition to data communicationservices. Cellcom Israel's shares are traded both on the New York StockExchange (CEL) and the Tel Aviv Stock Exchange (CEL). For additionalinformation please visit the Company's website http://www.cellcom.co.il
Forward-Looking Statements
The following information contains, or may be deemed to containforward-looking statements (as defined in the U.S. Private SecuritiesLitigation Reform Act of 1995 and the Israeli Securities Law, 1968). In somecases, you can identify these statements by forward-looking words such as"may," "might," "will," "should," "expect," "plan," "anticipate," "believe,""estimate," "predict," "potential" or "continue," the negative of these termsand other comparable terminology. These forward-looking statements, which aresubject to risks, uncertainties and assumptions about us, may includeprojections of our future financial results, our anticipated growthstrategies and anticipated trends in our business. These statements are onlypredictions based on our current expectations and projections about futureevents. There are important factors that could cause our actual results,level of activity, performance or achievements to differ materially from theresults, level of activity, performance or achievements expressed or impliedby the forward-looking statements. Factors that could cause such differencesinclude, but are not limited to: changes to the terms of our license, newlegislation or decisions by the regulator affecting our operations, theoutcome of legal proceedings to which we are a party, particularly classaction lawsuits, our ability to maintain or obtain permits to construct andoperate cell sites, and other risks and uncertainties detailed from time totime in our filings with the U.S. Securities and Exchange Commission,including under the caption "Risk Factors" in our Annual Report for the yearended December 31, 2009. Although we believe the expectations reflected in the forward-lookingstatements contained herein are reasonable, we cannot guarantee futureresults, level of activity, performance or achievements. Moreover, neither wenor any other person assumes responsibility for the accuracy and completenessof any of these forward-looking statements. We assume no duty to update anyof these forward-looking statements after the date hereof to conform ourprior statements to actual results or revised expectations, except asotherwise required by law.
The Company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Unless noted specifically otherwise, the dollar denominated figures were converted to US$ using a convenience translation based on the US$\New Israeli Shekel (NIS) conversion rate of NIS 3.875 = US$ 1 as published by the Bank of Israel on June 30, 2010.
Use of non-GAAP financial measures
EBITDA is a non-GAAP measure and is defined as income before financingincome (expenses), net; other income (expenses), net; income tax;depreciation and amortization. This is an accepted measure in thecommunications industry. The Company presents this measure as an additionalperformance measure as the Company believes that it enables us to compareoperating performance between periods and companies, net of any potentialdifferences which may result from differences in capital structure, taxes,age of fixed assets and related depreciation expenses. EBITDA should not beconsidered in isolation, or as a substitute for operating income, any otherperformance measures, or cash flow data, which were prepared in accordancewith Generally Accepted Accounting Principles as measures of profitability orliquidity. EBITDA does not take into account debt service requirements, orother commitments, including capital expenditures, and therefore, does notnecessarily indicate the amounts that may be available for the Company's use.In addition, EBITDA may not be comparable to similarly titled measuresreported by other companies, due to differences in the way these measures arecalculated. See the reconciliation between the net income and the EBITDApresented at the end of this Press Release.
Free cash flow is a non-GAAP measure and is defined as the net cash provided by operating activities minus the net cash used in investing activities plus short-term investment in marketable debentures. See the reconciliation note at the end of this Press Release.
Financial Tables Follow Cellcom Israel Ltd. (An Israeli Corporation)
Condensed Consolidated Statements of Financial position
Convenience translation into US dollar June 30, June 30, June 30, December 31, 2010 2010 2009 2009 NIS millions US$ NIS millions NIS millions millions (Unaudited) (Unaudited) (Unaudited) (Audited) Assets Cash and cash equivalents 585 151 1,223 903 Current investments, including derivatives 414 107 87 272 Trade receivables 1,588 410 1,537 1,579 Other receivables 59 15 114 63 Inventory 123 31 115 149
Total current assets 2,769 714 3,076 2,966
Trade and other receivables 573 148 620 606 Property, plant and equipment, net 2,048 529 2,089 2,096 Intangible assets, net 788 203 716 711
Total non- current assets 3,409 880 3,425 3,413
Total assets 6,178 1,594 6,501 6,379
Liabilities Debentures current maturities 343 88 333 350 Trade payables and accrued expenses 694 179 759 806 Current tax liabilities 135 35 128 67 Provisions 97 25 57 84 Other current liabilities, including derivatives 372 96 381 405
Total current liabilities 1,641 423 1,658 1,712
Debentures 4,026 1,039 4,266 4,185 Provisions 18 5 17 16 Other long-term liabilities 1 - - 1 Deferred taxes 81 21 148 91
Total non- current liabilities 4,126 1,065 4,431 4,293
Total liabilities 5,767 1,488 6,089 6,005
Shareholders' equity Share capital 1 - 1 1 Cash flow hedge reserve (9) (2) (11) (23) Retained earnings 419 108 422 396
Total shareholders' equity 411 106 412 374
Total liabilities and shareholders' equity 6,178 1,594 6,501 6,379
Cellcom Israel Ltd. (An Israeli Corporation)
Condensed Consolidated Statements of Income
Six-month period ended June 30,
Convenience translation into US dollar 2010 2010 2009 NIS US$ NIS millions millions millions (Unaudited) (Unaudited) (Unaudited)
Revenues 3,271 844 3,169 Cost of revenues 1,639 423 1,630
Gross profit 1,632 421 1,539
Selling and marketing expenses 361 93 335 General and administrative expenses 314 81 319 Other expenses, net 1 - 4
Operating income 956 247 881
Financing income 47 12 112 Financing expenses (144) (37) (151) Financing income (expenses), net (97) (25) (39)
Income before income tax 859 222 842 Income tax 219 57 220
Net income 640 165 622
Earnings per share Basic earnings per share in NIS 6.47 1.67 6.32
Diluted earnings per share in NIS 6.43 1.66 6.27
(continued)
Three-month period ended June 30, Year ended December 31, Convenience translation into US dollar 2010 2010 2009 2009 NIS millions US$ millions NIS millions NIS millions (Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues 1,691 436 1,608 6,483 Cost of revenues 838 216 819 3,333
Gross profit 853 220 789 3,150
Selling and marketing expenses 198 51 178 716 General and administrative expenses 155 40 165 660 Other expenses, net 1 - 2 6
Operating income 499 129 444 1,768
Financing income 47 12 52 151 Financing expenses (108) (28) (119) (370) Financing income (expenses), net (61) (16) (67) (219)
Income before 377 income tax 438 113 1,549 Income tax 112 29 100 367
Net income 326 84 277 1,182
Earnings per share Basic earnings per share in NIS 3.30 0.85 2.82 12.01
Diluted earnings per share in NIS 3.28 0.85 2.79 11.90
Cellcom Israel Ltd. (An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows
Six - month period ended
June 30, Convenience translation into US dollar 2010 2010 2009 NIS US$ NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) Cash flows from operating activities
Net income for the period 640 165 622
Adjustments for: Depreciation and Amortization 363 94 379 Share based payments - - - Loss (gain) on sale of assets 1 - 4 Income tax expense 219 57 220 Financial (income) expenses, net 97 25 39
Changes in operating assets and liabilities: Changes in inventories (5) (1) (28) Changes in trade receivables (including long- term amounts) 63 16 (51) Changes in other receivables (including long- term amounts) (13) (3) (88) Changes in trade payables and accrued expenses (36) (10) 124 Changes in other liabilities (including long-term amounts) (13) (3) (9) Proceeds (Payments) for derivative hedging contracts, net (12) (3) 17 Income tax paid (171) (44) (189) Net cash from operating activities 1,133 293 1,040
(continued)
Three- month period ended June 30, Year ended December 31, Convenience translation into US dollar 2010 2010 2009 2009 NIS millions US$ millions NIS millions NIS millions (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from operating activities
Net income for the period 326 84 277 1,182
Adjustments for: Depreciation and Amortization 182 47 191 755 Share based payments - - - 1 Loss (gain) on sale of assets 1 - 2 6 Income tax expense 112 29 100 367 Financial (income) expenses, net 61 16 67 219
Changes in operating assets and liabilities: Changes in inventories - - (3) (105) Changes in trade receivables (including long- term amounts) (13) (3) (12) (69) Changes in other receivables (including long- term amounts) 12 3 (63) 2 Changes in trade payables and accrued expenses (2) (1) 58 152 Changes in other liabilities (including long-term amounts) (19) (5) (18) (4) Proceeds (Payments) for derivative hedging contracts, net (7) (2) 12 21 Income tax paid (71) (18) (99) (447) Net cash from operating activities 582 150 512 2,080
Cellcom Israel Ltd. (An Israeli Corporation)
Condensed Consolidated Statements of Cash Flows (cont'd)
Six - month period ended
June 30, Convenience translation into US dollar 2010 2010 2009 NIS US$ NIS millions millions millions (Unaudited) (Unaudited) (Unaudited) Cash flows from investing activities Acquisition of property, plant, and equipment (212) (55) (196) Acquisition of intangible assets (100) (26) (89) Acquisition of operation, net of cash acquired* (108) (28) - Change in current investments, net (138) (35) - Proceeds (payments) for other derivative contracts, net** (8) (2) 34 Proceeds from sales of property, plant and equipment 1 - - Interest received 4 1 4 Net cash used in investing activities (561) (145) (247)
Cash flows from financing activities Proceeds from derivative contracts, net 17 4 4 Proceeds (Payments) for short term borrowings (8) (2) - Repayment of debentures (171) (44) (164) Proceeds from issuance of debentures, net of issuance costs - - 989 Dividend paid (611) (158) (596) Interest paid (117) (30) (78) Net cash used in financing activities (890) (230) 155
Changes in cash and cash equivalents (318) (82) 948 Balance of cash and cash equivalents at beginning of the period 903 233 275 Balance of cash and cash equivalents at end of the period 585 151 1,223
(continued)
Three- month period ended June 30, Year ended December 31, Convenience translation into US dollar 2010 2010 2009 2009 NIS millions US$ millions NIS millions NIS millions (Unaudited) (Unaudited) (Unaudited) (Audited) Cash flows from investing activities Acquisition of property, plant, and equipment (107) (27) (84) (404) Acquisition of intangible assets (42) (11) (42) (173) Acquisition of operation, net of cash acquired* (108) (28) - - Change in current investments, net - - - (212) Proceeds (payments) for other derivative contracts, net** (3) (1) 10 8 Proceeds from sales of property, plant and equipment - - - 2 Interest received 1 - 4 5 Net cash used in investing activities (259) (67) (112) (774)
Cash flows from financing activities Proceeds from derivative contracts, net 4 1 - 33 Proceeds (Payments) for short term borrowings (5) (1) - 8 Repayment of debentures - - - (332) Proceeds from issuance of debentures, net of issuance costs - - 989 989 Dividend paid (355) (92) (326) (1,186) Interest paid - - 8 (190) Net cash used in financing activities (356) (92) 671 (678)
Changes in cash and cash equivalents (33) (9) 1,071 628 Balance of cash and cash equivalents at beginning of the period 618 160 152 275 Balance of cash and cash equivalents at end of the period 585 151 1,223 903
Cellcom Israel Ltd. (An Israeli Corporation)
Reconciliation for Non-GAAP Measures
EBITDA
The following is a reconciliation of net income to EBITDA:
Year ended December Three-month period ended June 30, 31,
Convenience translation into US dollar
2010 2010 2009 2009 NIS NIS millions US$ millions NIS millions NIS millions (Unaudited) (Unaudited) (Unaudited) (Audited)
Net income...............326 84 277 1,182 Income taxes.............112 29 100 367 Financing income.........(47) (12) (52) (151) Financing expenses.......108 28 119 370 Other expenses.............1 - 2 6 Depreciation and amortization............ 182 47 191 755 EBITDA...................682 176 637 2,529
Free Cash Flow
The following table shows the calculation of free cash flow:
Year Three-month period ended June 30, ended December 31, Convenience translation into US dollar
2010 2010 2009 2009 NIS millions US$ millions NIS millions NIS millions (Unaudited) (Unaudited) (Unaudited) (Audited)
Cash flows from operating activities.................. 582 150 510 2,080Cash flows from investingactivities................. (259) (67) (110) (774)short-term Investment in tradable debentures.......... - - - 212Free Cash Flow.............. 323 83 400 1,518
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[1] Please see "Use of Non-GAAP financial measures" section at the end of this press release.
[2] See "Other developments during the second quarter of 2010 and subsequent to the end of the reporting period", under "Regulation - Tariff Supervision", below, for additional details.
[3] Please see "Use of Non-GAAP financial measures" section at the end of this press release.
[4] Please see "Use of Non-GAAP financial measures" section at the end of this press release. Free cash flow for the second quarter 2010 includes the payment of NIS 108 million ($28 million) for the acquisition of the assets and operation of Dynamica, one of our major dealers, previously reported. Excluding such payment, our free cash flow totaled NIS 431 million ($111 million), a 7.8% increase.
Company Contact IR Contacts
Yaacov Heen Porat Saar & Kristin Knies Chief Financial Officer CCG Investor Relations Israel & US [email protected] [email protected] Tel: +972-52-998-9755 Tel: +1-646-233-2161
SOURCE Cellcom Israel Ltd.
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